Introduction to

Earned Value Management

May 17, 2017

Presented By:

Daryl Zahn, CFCM, President, NCMA-Wisconsin Chapter

Manager, Contracts & Compliance, DRS Power & Control Technologies, Inc.

EVMS and Federal Contracting

• FAR Part 34 -Major System Acquisition

• 34.000 -- Scope of Part. This part describes acquisition policies and procedures for use in acquiring major systems consistent with OMB Circular No. A-109; and the use of an Earned Value Management System in acquisitions designated as major acquisitions consistent with OMB Circular A-11, Part 7.

• Subpart 34.2--Earned Value Management System

• An Earned Value Management System (EVMS) is required for major acquisitions for development, in accordance with OMB Circular A-11. The Government may also require an EVMS for other acquisitions, in accordance with agency procedures.

• (b) If the offeror proposes to use a system that has not been determined to be in compliance with the Electronic Industries Alliance Standard 748 (EIA-748), the offeror shall submit a comprehensive plan for compliance with these EVMS standards. Offerors shall not be eliminated from consideration for contract award because they do not have an EVMS that complies with these standards. 2

EVMS and Federal Contracting

• DFARS SUBPART 234. 201 EARNED VALUE MANAGEMENT SYSTEM Policy

• (1) DoD applies the earned value management system requirement as follows:

• (i) For cost or incentive contracts and subcontracts valued at $20,000,000 or more, the earned value management system shall comply with the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748, Earned Value Management Systems (ANSI/EIA-748).

• (ii) For cost or incentive contracts and subcontracts valued at $50,000,000 or more, the contractor shall have an earned value management system that has been determined by the cognizant Federal agency to be in compliance with the guidelines in ANSI/EIA-748.

• (iii) For cost or incentive contracts and subcontracts valued at less than $20,000,000—

• (A) The application of earned value management is optional and is a risk-based decision;

• (B) A decision to apply earned value management shall be documented in the contract file; and

• (C) Follow the procedures at PGI 234.201(1)(iii) for conducting a cost-benefit analysis.

• (iv) For firm-fixed-price contracts and subcontracts of any dollar value—

• (A) The application of earned value management is discouraged; and

• (B) Follow the procedures at PGI 234.201(1)(iv) for obtaining a waiver before applying earned value management. 3

EVMS and Federal Contracting

• DFARS SUBPART 234.201(3)

• The Defense Contract Management Agency is responsible for determining earned value management system compliance when DoD is the cognizant Federal agency.

• 252.242-7005 Contractor Business Systems.

• (e) Withholding payments. (1) If the Contracting Officer issues the final determination with a notice to withhold payments for significant deficiencies in a contractor business system required under this contract, the Contracting Officer will withhold five percent of amounts due from progress payments and performance-based payments, and direct the Contractor, in writing, to withhold five percent from its billings on interim cost vouchers on cost-reimbursement, labor-hour, and time-and-materials contracts until the Contracting Officer has determined that the Contractor has corrected all significant deficiencies as directed by the Contracting Officer’s final determination…

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EVMS and Federal Contracting-History

• 1960s - Earned value-based performance management began in the 60s, based initially on Department of Defense (DOD) Cost/Schedule Control Systems Criteria (C/SCSC).

{1966 US Air Force implementations}

• Earned Value was used as an objective measure for progress, i.e., physical accomplishment

• 1970s-80s – The DOD continued the use of Earned Value in response to bearing cost and schedule risk in cost-plus contracting.

• Contractors pushing high tech, newly developed weaponry

• Military having critical schedule needs (“Arms Race”)

• 1990s – Policy moved Earned Value into all Federal agencies

• OMB Circular: A-11, NASA Policy Directive 9501.3, DOD 5000.2R, and DOE, Order 413.3 to name a few

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Earned Value Management Tutorial Module 1: Introduction to Earned Value Management –

Presentation by Booze-Alan-Hamilton to Department of Energy

Basic Purpose: Why EVMS?Contractor and Customer Benefits

• An earned value management system is an aid to both the EVM contractor and EVM customer. The benefits of implementing an EVMS can be summarized as follows. An EVMS:

• Improves the planning process;

• Fosters a clear definition of the work scope;

• Establishes clear responsibility for work effort;

• Integrates technical, schedule, and cost performance;

• Provides early warning and analysis of potential Earned Value problems;

• Identifies problem areas for immediate and proactive management attention;

• Enables more accurate reporting of cost and schedule impacts of known problems;

• Enhances the ability to assess and integrate technical, schedule, cost, systems analysis, and risk factors;

• Provides consistent and clear communication of progress at all management levels; and

• Improves project visibility and accountability. 6

Considerations: Why Not EVMS?• Quality of the work accomplished is not measured

• Requires close attention to details and visibility into program risks

• Implementation costs are usually high and requires a high level of coordination between departments

• Users must be disciplined and dedicated to maintaining data integrity

• Data collection and analysis can be time consuming

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These are the reasons why the Federal Government limits the required

use of Earned Value Management to only major acquisitions, normally

only on Cost Reimbursable contracts, and discourage mandated use on

Firm Fixed Price, T&M or Labor Hour Contracts.

Definition: What is Earned Value Management?

• Earned Value Management (EVM) is a systematic approach to the integration and measurement of cost, schedule, and technical (scope) accomplishments on a project or task. It provides both the government and contractors the ability to examine detailed schedule information, critical program and technical milestones, and cost data.

• Earned Value Management is intended to provide data from a contractor’s management system to the government in standard data elements that…

• Relate time-phased budgets to contract tasks

• Integrate cost, schedule, and technical performance

• Indicate work progress objectively

• Are valid, timely and auditable

• Are from the internal system the contractor uses to manage

• Are at a practical level of summarization

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Required Elements of EVMS• The 32 EVMS guidelines are defined in the American National

Standards Institute/ Electronic Industries Alliance (ANSI/ EIA) Standard 748-1998 (ANSI/ EIA-748), Earned Value Management System Guidelines. The 32 EVMS guidelines identified by ANSI/ EIA-748 address nine management processes:

• Organizing

• Accounting

• Change Incorporation

• Scheduling

• Indirect Management

• Material Management

• Work/Budget Authorization

• Managerial Analysis

• Subcontract Management 9

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EVMS Defined

Tools

•MSProject Server

•Oracle / Costpoint

•MS Excel

•Cobra

People

•Program Managers

•CAMs

•Operations

•Scheduling

•Finance

Process

•Regulations

•Industry Standards

•Policy

•Procedure

An earned value management system (EVMS) is an integration of well documented businesspractices, processes, reliable business systems and tools, and well trained responsible employees

What is needed to use EVM?

1. Establish Work Breakdown Structure (WBS)

2. Establish Organisation Breakdown Structure (OBS)

3. Integrate planning, scheduling, budgeting, work authorisation and cost accumulation with WBS & OBS

4. ID company organisation responsible for controlling overheads

5. Cost & schedule performance measurement by WBS/OBS

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David Galley – January 2002: Presentation to BCS: Management with the lights on

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Performance Measurement Baseline (PMB)

Integration of Scope (aka Technical Scope), Schedule, and Cost

Source: Humphreys & Associates EVM Fundamentals

Very Basics: 5 Key Elements:

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Spend Plan

• Only tracks costs to budget

• Cannot predict final costs

• Does not indicate efficiencies

Earned Value Management

• Quantifies the value of the work accomplished

• Tracks schedule and cost performance

• Predicts final costs

• Calculates past and future efficiency rates

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S-Curve ChartSample Project: EVM S-Chart

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BCWS – Budgeted Cost of Work Scheduled

ACWP – Actual Cost of Work Performed

BCWP – Budgeted Cost of Work Performed

BAC – Budget At Complete

ETC – Estimate To Complete

EAC – Estimate At Completion

SV – Schedule Variance

CV – Cost Variance

SPI – Schedule Performance Index

CPI – Cost Performance Index

What we can now measure:

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Questions?

• Thank you for your attention!

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